QUIZ – FY Trading Update
The good:
- No deterioration since the last update on 7th March
- Slight revenue beat against forecasts
- YoY sales growth across every channel, including stores / concessions
- 58% growth from QUIZ’s own websites
- Suppliers unaffected by Debenhams plc administration
The bad:
- Debenhams contributed 23% to overall revenues (this is over the year, not a year-end run-rate). In the best case these sales will reduce over the next 12 months as stores close – based on current plans total revenue looks to fall 5-8% from this effect alone (23% x 20-35%). In the worst case the Debenham’s operating companies could still collapse resulting in significant bad debt.
- Online growth overall of 34% is relatively lackluster compared to e.g. BooHoo or ASOS at this size / stage.
- A significant majority of sales continue to be from stores. Most sales are from UK stores.
- No news of efforts towards closure of stores / concessions until 11th June.
- No news on current cash
FY2019 forecasts of 3.3p EPS are now secure. FY2020 forecasts of 3p look like a reasonable best guess, although highly dependent on the store review and there may be some exceptional closure costs. Forecast revenue growth requires online to add more sales than it did over the last year without too much tailing off in percentage growth.
On a normal valuation metrics they appear cheap, especially when cash adjusted. However Bonmarche has shown us how quickly trading can deteriorate, how seasonal cash can be and how quickly it can be consumed. For me, the main distinguishing factor from Bonmarche is the Operating Margin which runs at approximately double what they achieved.
The share price was not affected by events over the last couple of weeks at Debenhams and so this . There may be a small relief rally as trading has not deteriorated further, but the market will then start looking forward to the outcome of the review on 11th June.
I have a small holding. I will be looking for further price weakness or less FY2020 uncertainty before adding.
LeoInvestorUK's blog 
Well, what went wrong here? I said “FY2019 forecasts of 3.3p EPS are now secure” but within days they were cut to 0.6p, then 0.5p and with an outturn today of 0.33p. Well I think the most likely explanation is that one or two of the three brokers that made up that forecast shown on Stockopedia had not updated since the March profits warning. The three brokers are named as Stifel, Panmure (house) and N+1 Singer. Of these only N+1 Singer appears on Research Tree and they haven’t updated since October.
So, what I should have done is looked at the EBITDA forecast of £4.5m given in the statement, added back in ITDA and divided by the number of shares to get EPS. Difficult to do before the market opens when there are other things to look at, although I could have done it at any the time since the profits warning in March. Here’s the calculation:
Adjusted EBITDA: £4.5m
HoF write off: £0.4m
Expected EBITDA: £4.1m
IDA implied by interim results summary: (£5.6 – £3.8) x 2 = £3.6m (would be better to look at full year and half-year trend)
Expected PBT: £0.5m
Less 20% tax: £0.4m (dangerous assumption at low level of profitability)
Shares in issue 124m (approximation – an average should be used)
0.4/124 = 0.32p / share
Note this is on an “actual” basis. Adjusted/underlying would come out higher, but at least in the right ballpark.
The only positive thing to say that the share price rose on the day of my report from 17.4p to 20.9p and peaked at nearly 30p before falling back. So my prediction of a relief rally followed by concerns over the future happened to be on the money. And I sold today 20% higher than I could have done when I wrote this article.
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